Euro zone growth hopes fade into 2013 - Reuters poll

The dome of the Bank of Spain is seen beside a red traffic light in central Madrid February 15, 2010.

Reuters/Sergio Perez

LONDON Hopes the euro zone economy will regain a firm footing this year have ebbed away and economists polled by Reuters now expect a modest return to growth in 2013, helped by the region's financial firewalls coming into force.

The results of the Reuters poll of nearly 70 economists follow Wednesday's news that Germany's top court had given the go ahead for the euro zone's new rescue fund, but with conditions.

While many analysts see that as a crucial step in solving the euro zone's debt crisis, the poll showed the region's economic state will remain parlous in the months ahead.

The economy shrank 0.2 percent in the second quarter and output will drop by the same margin this quarter, the poll showed, which would mean the currency union is in recession now.

Economists expect stagnation in the fourth quarter, unchanged from last month's poll, with only minimal growth seen in 2013.

"We may have to wait until 2014 before seeing growth return to potential," said Peter Vanden Houte, chief euro zone economist at ING in Brussels, in a note.

Such a moribund economic picture will likely prompt the European Central Bank to cut its main refinancing rate from 0.75 percent to a new record low 0.5 percent soon, the poll showed, with October long earmarked as the likeliest opportunity.

Economists from two of the world's largest investment banks, Citi and JPMorgan, said the ECB would cut rates to 0.25 percent by the end of the year.

European Central Bank chief Mario Draghi pledged last week that the bank would launch a new and potentially unlimited bond-buying programme to lower struggling euro zone countries' borrowing costs and draw a line under the debt crisis.

New rounds of monetary easing are also expected from the U.S. Federal Reserve this week, and the Bank of England in November, the polls showed. <ECILT/US> <ECILT/GB>

"While the ECB action contributes to the stability of the euro zone, it is not the final solution. Member states still will be confronted with austerity and a lack of growth," added ING's Vanden Houte.

The euro zone's third and fourth-largest economies, Italy and Spain, are suffering severe recessions, and many expect the latter to seek outside help to ease its painfully high government borrowing costs.

Spanish Prime Minister Mariano Rajoy said on Wednesday that Madrid continues to study the price it will have to pay for seeking help from the European Central Bank's bond-buying programme but improved market conditions may make aid unnecessary.

Still, 16 out of 21 economists who answered an extra question said Spain will agree to become part of the ECB's bond-buying programme. The remaining five said not.

"Draghi's new bond-buying programme could help keep interest rates for peripheral governments low, but it does not resolve the competitiveness problem for these countries," said Azad Zangana, economist at Schroders in London.

Business surveys over the last two months have suggested the euro zone's downturn may be bottoming out, but without hinting of a quick resurgence soon.

Still, there are reasons for some cautious optimism on the horizon, said ING's Vanden Houte, such as the gradual easing of financing conditions for struggling peripheral countries, and exchange rate movements.

"The euro is now around 10 percent weaker in trade-weighted terms than a year ago, which should, with some delay, bolster exports," he said.